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Insolvency And Risk‐Taking In The Thrift Industry: Implications For The Future

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  • JAMES R. BARTH
  • R. DAN BRUMBAUGH, JR.
  • DANIEL SAUERHAFT
  • GEORGE H. K. WANG

Abstract

This paper puts the current problems facing the thrift industry, Federal Home Loan Bank Board, and Federal Savings and Loan Insurance Corporation into historical perspective. It discusses the development of federal deposit insurance and regulation of depository institutions. The paper discusses causes of the recent financial difficulties faced by thrift institutions and the policy responses to those problems. It then examines the effect of the recent 511 thrift failures on the risk‐taking behavior of institutions and the Bank Board's policy responses to risk‐taking. Finally, the paper suggests possible responses to the large and growing number of insolvent institutions that have an economic incentive to pursue extremely risky portfolio opportunities.

Suggested Citation

  • James R. Barth & R. Dan Brumbaugh, Jr. & Daniel Sauerhaft & George H. K. Wang, 1985. "Insolvency And Risk‐Taking In The Thrift Industry: Implications For The Future," Contemporary Economic Policy, Western Economic Association International, vol. 3(5), pages 1-32, September.
    • Handle: RePEc:bla:coecpo:v:3:y:1985:i:5:p:1-32
    DOI: 10.1111/j.1465-7287.1985.tb00818.x
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    References listed on IDEAS

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    1. Buser, Stephen A & Chen, Andrew H & Kane, Edward J, 1981. "Federal Deposit Insurance, Regulatory Policy, and Optimal Bank Capital," Journal of Finance, American Finance Association, vol. 36(1), pages 51-60, March.
    2. Merrick, John J, Jr & Saunders, Anthony, 1985. "Bank Regulation and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 691-717, November.
    3. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, March.
    4. James R. Barth & R. Dan Brumbaugh & Daniel Sauerhaft & George Wang, 1985. "Thrift institution failures: causes and policy issues," Proceedings 68, Federal Reserve Bank of Chicago.
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    Cited by:

    1. RICHARD W. Nelson, 1993. "Regulatory Structure, Regulatory Failure, And The S& L Debacle," Contemporary Economic Policy, Western Economic Association International, vol. 11(1), pages 108-115, January.
    2. Darby, Michael R., 1986. "The internationalization of American banking and finance: Structure, risk, and world interest rates," Journal of International Money and Finance, Elsevier, vol. 5(4), pages 403-428, December.
    3. Gerald P. O'Driscoll, 1988. "Bank Failures: The Deposit Insurance Connection," Contemporary Economic Policy, Western Economic Association International, vol. 6(2), pages 1-12, April.
    4. Devra L. Golbe & Bernard Shull, 1991. "Risk Taking By Thrift Institutions: A Framework For Empirical Investigation," Contemporary Economic Policy, Western Economic Association International, vol. 9(3), pages 106-115, July.
    5. Randall W. Bennett & Christine Loucks, 1996. "Politics And Length Of Time To Bank Failure: 1986–1990," Contemporary Economic Policy, Western Economic Association International, vol. 14(4), pages 29-41, October.
    6. Kenneth E. Scott, 1987. "The Defective Design Of Federal Deposit Insurance," Contemporary Economic Policy, Western Economic Association International, vol. 5(1), pages 92-99, January.

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